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The Tax Benefits of Having a Baby

Having a baby is such a wonderful blessing, but along with the tremendous amount of joy comes a large amount of new expenses. The federal government offers a number of tax breaks to help parents save money on their tax bill.

The Dependent Exemption

For 2016, you can claim a $4,050 exemption by adding your child as a dependent. This will reduce the amount of income which you will be taxed on. This is not a prorated amount, meaning that you qualify for the entire amount no matter what time of the year the child was born. For example, a married couple with one child would qualify for three exemptions, even if that baby was born in December of the year.

There is a phase-out on the dependent exemption that applies once your adjusted gross income exceeds $259,400 for single filers, $285,350 for head of household, $155,650 for married filing separately, and $311,300 for married couples filing jointly in 2016.

The Child Tax Credit

The child tax credit provides a credit of $1,000. A credit is different than a deduction in that it reduces the amount of the tax bill dollar for dollar compared to a deduction that reduces the amount of income you are being taxed on.

There is a phase-out for the child tax credit which starts when your income is above $110,000 for married couples filing jointly, $75,000 for single filers and head of household, or $55,000 for married filing separately.

The Child Care Credit

The child care credit provides a credit for the costs you pay for a qualifying individual while you and your spouse, if you are married filing jointly, work or look for work.

The dollar limit on the amount of the expenses you can use to figure the credit is $3,000 for the care of one child under age thirteen or $6,000 for two or more children under age thirteen. The amount of your credit is between 20-35 percent of your allowable expenses. There is not a complete phase-out for this credit, but the credit decreases as the amount of income increases. Families with an adjusted gross income of $43,000 or more will only be able to take 20% of allowable expenses.

 

With the year coming to an end, it is important to start getting your books in order to have them ready to close, and get a head start on filing your tax return. It is important to know that for the upcoming year, many due dates have changed for 2016 returns, and will be changed going forward.

Here are a few of those dates that have changed for the upcoming filing season. Additional guidance can be found on the American Institute of Certified Public Accountants (AICPA) website:

• Partnerships with a calendar year end will have a new due date of March 15th, and the extension date remains as September 15th. Fiscal year partnership returns are due on the 15th day of the 3rd month after year end, and a six month extension is allowed from that date.

• Trusts and Estates Form 1041 will have the same filing date of April 15th, but the new extension date is now September 30th.

• Exempt organizations will have the same filing date of May 15th, but with a single automatic 6-month extension of November 15th.

• FinCEN Report 114 will have a new due date of April 15th, with a new extension date of October 15th.

• Information returns including W-2 and most 1099 MISC forms will be due to the IRS/SSA on January 31st. This is the same date that they are due to the taxpayer. All other 1099 forms are due February 28th or March 31st if filed electronically.

• C Corporations have different rules for the upcoming years depending on when the year end is:

C Corporations with a calendar year end will have a new due date of April 15th with an extension date of September 15th.

C Corporations with a fiscal year end return other than December 31st and June 30th will be due on the 15th of the 4th month after the year end with an extension on the 15th of the 10th month after year end.

C Corporations with a June 30th fiscal year end will have a due date of September 15th with a new extension due date of April 15th.

It is important to be aware of these new filing dates since this will effect many entity returns in the upcoming filing season.

 

 

 

 

 

 

With all of the talk of tax deadlines switching for 2016 tax returns it’s important to go over some of the deadlines for this current tax season. The deadlines for this year are the same as they have been in the past. Here are a few of those dates, but additional guidance can be found on the IRS website.

File form 1120 or 1120S for calendar year 2015 and pay any tax due

File form 7004 for an automatic 6 month extension, and deposit estimated tax

The return or extension must be postmarked or transmitted for e-filing by Monday, April 18, 2016
Your tax payment is still due by April 18 and can be submitted with the extension form

Non-profits can request an automatic three-month extension by submitting Form 8868

For taxpayers who have over $10,000 in total in foreign bank accounts
These forms must be filed electronically and there are no extensions

The organization can request an additional three-month extension (not automatically granted) by filing another Form 8868 and filing out the information in Part II

If you filed for an extension, this is the final deadline to file your individual tax return for 2015

All of the deadline changes will occur in 2017 for 2016 returns.

On Tuesday, tax season officially began, and the IRS started accepting electronic returns, and processing paper returns. However, many of you may be waiting for your tax documents. The IRS urges taxpayers to wait until they have received all tax documents before filing. Here is a list of some common IRS forms you may be waiting for to file your return. I have included the due dates that are listed on the back of the tax documents. The form is considered on time if they have been mailed to the recipient on or before that date. Generally, many of these forms are required to be mailed by January 31st, but since this date falls on a weekend the due date is the next business day.

Check the IRS website under Current Forms & Publications Search to look at any additional tax forms that you have questions about.

Be sure to look out for any mention of possible amendments on any of these forms. It is common for brokerages to provide 1099 forms by the deadline, but then have a note on them that there may be changes that could cause an amended 1099.

If you are waiting on a K-1 from a separate entity, you may be waiting awhile longer. The date you receive this will depend on when the entity files their return. Be sure to check the due date of the entity’s return, and be aware of possible extensions.

 

It is never too early to start thinking about the upcoming tax season. The closer to the filing deadline it gets, the more pressure you will feel when getting your documents together and the possibility that something could be missed may increase. The other side of that is your tax preparer will get busier and busier as the tax deadline nears, which may prolong the time it takes for you to get your return completed. There is no harm in trying to get your return done before the deadline. You always have the option to wait to file the completed return until closer to the deadline.

Here are some tips to help you get ready for tax season, and avoid silly errors that could delay the filing process.

Will you prepare yourself, use computer software, or use a tax preparer?

Did you get married? Divorced? Have a child? Move?

This may include employment W-2s, 1099s, K-1s, mortgage interest statements, student loan interest forms, etc.

A good place to start with this is by looking at your prior year’s tax return and at the documents used to prepare this return.  Then determine what has changed, i.e. new house, changed jobs, new investments, etc.

This includes all dependents’ ID numbers and names.

 

When preparing to start a family, it is important to look at your finances, and assess your current financial situation. You are not always in a situation where you can do this, but if you can plan this ahead of time it could help ease some worry to know you are financially prepared. There is no exact amount you need to have saved when preparing to add a new family member, but it is important to make sure you have the bare essentials covered.

There are many added expenses that come with having a baby. A good way to plan for all of these new expenses will be to assess what is essential and put them at the top of your list to save for. A good way to limit your spending on some of the items needed would be to try to borrow them or buy them used.

Start looking at your financial situation by tracking all of your expenses to see if your income is covering your current expenses and determine if you have additional money left over. It is recommended to do this for at least a month, but this should only be used as a guideline since your monthly spending will vary, and this wouldn’t account for seasonal changes. Once you have listed your expenses, go through them and separate the items you need verse the ones you can go without. This will be helpful to determine the areas that you could limit your spending to help save.

When looking at your monthly income, it is important to factor in the difference in earnings that will occur when you are on maternity leave. Check to see what your company’s policy is for maternity leave. This can make a large difference to your monthly income if your plan is to take time off work and it is either unpaid or a percentage of your income.

Ideally, you should have enough savings to account for the change in your earnings over maternity leave, or if you are planning on changing your work schedules after you have the baby. It is also recommended to have an eight month emergency fund to keep you out of debt if anything unexpected occurs. It is never too early to start saving – the earlier you save the less of a burden it will be to set the money aside and get your finances in order.

 

 

There are so many wonderful non-profit organizations in the Northern Nevada area, one of which is The Give Hope Foundation. I was recently asked to be a board member for this organization, and could not pass up the opportunity to be a part of an organization with such an important cause. Give Hope provides financial assistance to Northern Nevada families with children battling a chronic illness.

Financial assistance for these families could include non-covered medical expenses, but could also be any number of expenses necessary to support the family and the child. These expenses could include rent or utility payments, travel expenses for out of state treatment, food, or any other expenses the family may need help paying. One of the things that sets this foundation apart is it does not target a specific illness, thus allowing the foundation to provide financial assistance to families that need help regardless of the child’s diagnosis or illness.

This foundation has helped over 325 families and has distributed over $650,000 since its inception. The majority of the funds stay in our local community to help northern Nevada families and a small percentage is allocated to St. Jude’s Children’s Research Hospital and Children’s Hospital Oakland.

Give Hope has been helping children in our community since 2001, and received its 501(c)(3) charitable exemption status in 2005. Each year Give Hope hosts two annual fundraising events including a golf tournament and an auction gala to help raise money to support their cause. Upcoming is the golf tournament on July 10th at the LakeRidge golf course. There will also be an Aces game on Wednesday, July 29th at 7:05 p.m. where a portion of the tickets bought through the Give Hope website will directly benefit the Give Hope Foundation. There are many opportunities to support this organization through the events and all year long through donations. More information about these events and the organization can be found at their website.

 

 

It was announced on Friday, February 20, 2015 that approximately 800,000 people received incorrect 1095-A forms. The 1095-A forms are used to report the premiums and tax credits for taxpayers who signed up for discounted health insurance coverage through the HealthCare.Gov Marketplace. This error affects up to 20% of the statements sent by the federal insurance website. The error was due to a coding issue in a calculation that included the local premium data for 2015, instead of the information for 2014.

The government is notifying those who received an incorrect statement. If your form is incorrect, you should get a call and an email from the Marketplace. There will also be a message in your Marketplace account on HealthCare.gov. When your corrected form is ready, you will be notified. The corrected forms are supposed to be issued in early March. If you received an incorrect 1095-A, you should wait to file your tax return until you receive the corrected form. If you already filed your taxes with the incorrect information you will need to amend you return.

Along with the announcement of the error, came an extension period to sign up for health insurance through the Marketplace. The original enrollment period began November 15th and ended February 15th. The extension will allow enrollment starting March 15th to buy coverage if they attest that they learned of the penalty of not having insurance when they filed their 2014 tax return. The additional enrollment period will go until the end of April. These individuals will still have to pay a penalty for being uninsured in 2014, and a partial penalty for the time they were uninsured in 2015, but they would avoid the penalty of being uncovered for all of 2015.

 

 

Companies having their data hacked seems to be a common occurrence these days. This is causing credit card companies to issue new cards every few months, or at least it feels like it happens this often. This has me thinking that maybe using cash more frequently may be a good idea. There are times when using a credit card can be beneficial; however, if not used properly, a credit card can cause a lot more harm than good.

Paying with a credit card lets you postpone the actual obligation of payment to the future, while cash payments make you physically have the cash to make the purchase. Purchasing items on credit without being able to afford it will just lead to debt sitting on your card accumulating finance charges. Using cash would be beneficial if you have a tough time holding off on large purchases until you have the money.

Avoid using a credit card when the company requires large processing fees. These processing fees can sometimes be more expensive than waiting until you have the cash and paying the late fee. These fees will usually offset the rewards one would receive by using a credit card. To avoid paying more than you need to, compare the processing fees to the late fees to make sure you are making the right choice.

Most credit cards offer many types of rewards and exclusive benefits. You can avoid interest and late fees by making payments on time and paying off your balance. The rewards will add up, making credit cards more beneficial than paying cash. Just make sure you pay off your balance so the fees are not also adding up. Other credit card benefits include additional warranties and purchase protection.

As much of a pain as it is when your credit card company issues a new card after a potential data hack, it is actually one of the credit cards’ greatest advantage. If cash is stolen from you it is hard, if not impossible, to retrieve this cash. However, if your credit card is stolen or fraudulent charges are made on your card, it takes one call to cancel the credit card, refute the charges, and have another card sent to you. This is a much less painful process than trying to retrieve stolen cash.

These are only a few examples of situations where you should decide what is better, paying with cash or credit. By making conscious choices when it comes to your payment method, it can end up saving you money.

 

 

It’s time for your kids to go back to school, and with that comes a lot of added expenses. With all of the back to school sales it is easy to get overwhelmed, and end up spending much more than planned. Here are a few tips to stay in budget when going back to school shopping this year:

Many people forget to factor in sales tax when creating a budget. These amounts can definitely add up so it is important to include this in your budget. Some states even offer a few days in the late summer where school related items can be purchased tax-free. If you live in one of these states, try to take advantage of this because it will make a difference.

By staying on budget it will make back to school shopping more enjoyable for both you and your children.

 





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